Managing Inbound Freight Transportation – Part 1 – Identify the Cost Savings Opportunities

Managing Inbound Freight is often overlooked or not optimally managed as an opportunity for cost savings in many companies. This is a conclusion we have come to after working with a range of companies and industries over the past 13 years. When we are invited to meet with a manufacturer or distributor of freight, the priority is usually finding cost savings on outbound freight, not inbound freight. This seems to be the result of several factors.

First, many companies are not able to determine how much they are paying for inbound freight. Freight costs are often embedded in the “landed cost” of the products; the actual freight cost component is not identified. Many companies have poor visibility into their inbound freight activity.

Second, some companies don’t care about their inbound freight costs. They take the landed cost of their inbound shipments and add a markup. They are satisfied with this approach.

Third, some companies are concerned about upsetting their vendors by asking them what they pay for freight. These companies may be very dependent on certain vendors for specific products and have a perception that by engaging in a dialogue on freight costs, an area that the vendor has historically managed on their own, this may encourage the vendor to give priority to other customers. In some situations there is the perception that because the vendor is a large company, they are able to negotiate better rates than the manufacturer receiving the goods.

Fourth, companies often have a Transportation or Logistics Manager who is responsible for outbound freight; inbound freight is managed, unmanaged or mismanaged separately by the purchasing/procurement department. Shippers who take charge of Inbound Freight Transportation can achieve savings in a number of areas.

Remove the markup on inbound freight

Some vendors manage their outbound freight as a profit center.  They add a markup on their freight costs and pass it on to their customers. Eliminating the markup can produce immediate cost savings.

Lever total freight volumes and lanes in carrier negotiations

When inbound and outbound freight are managed independently and separately, this reduces or eliminates the opportunity to lever total volumes with specific carriers. But carrier rates and rebates are often tied to total volumes of freight. By focusing on total freight volumes, this increases the opportunities to negotiate lower rates.

Actively manage Inbound Transportation

Some companies tie their inbound freight management to inventory levels. Specific inventory levels trigger purchase orders. The purchase orders are tied to static routing guides. As inventory levels drop, orders are placed on established vendors for a specific number of pallets or cartons. Since certain modes and carriers are correlated with each vendor and origin location, the carrier selection process is very linear. If there is no intelligence built into the shipping process, there are no automated business rules to guide shipment levels or consolidation opportunities. Similarly, there may be no process to match an inbound load to an outbound load to create round trip rates. In other words, a range of cost saving opportunities is missed when Inbound Freight is not actively managed. The next blog will highlight the steps that a shipper can take to capture these savings.

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